college funding workbook

3.2 MB·

College Funding
Investing in Your Children’s Future
PREVIEW
Contents
Estimate the Cost .....................................................3
Preparing Now for College Costs .................................. .3
The Importance of Acting Now ....................................3
Current and Future Cost of a College Education ...................... .4
Calculating the Cost ............................................ .5
What Is Your Savings Goal? ...................................... .6
Factor in Your Timeline .......................................... .6
How Will You Pay for College? ................................... .6
Establish a College Fund ..............................................7
How the Typical Family Saves for College ...........................7
College Savings Options ......................................... .7
529 Plans ..................................................... .8
Coverdell Education Savings Accounts ..............................9
Roth IRAs ................................................... .10
Taxable Accounts ..............................................11
Stocks, Bonds, Mutual Funds, ETFs ...............................11
Investing Considerations ........................................ .12
Sample Asset Allocation Models ..................................12
Setting a College Savings Goal ...................................12
EvaluateP Other FuRnding SoEurces ..V.........I...E.........W..............13
How the Typical Family Pays for College ...........................13
Financial Aid ................................................. .13
Grants and Scholarships ........................................ .13
How Is Financial Need Determined? .............................. .14
Applying for Financial Aid ...................................... .15
College Loans ................................................ .15
Retirement Plans .............................................. .16
Gift from Grandparents ......................................... .16
Countdown to College ...............................................17
Figuring Out Your Net Cash Flow .....................................18
Figuring Out Your Net Worth .........................................19
What to Bring ...............................................back cover
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College Funding
Estimate the Cost
Preparing Now for College Costs
Whether your child plans to attend a public college or a private
college — or go beyond four years to earn a master’s degree —
preparing now for the cost of your child’s education is a smart
financial move.
College is expensive: The average total cost for four years at
an in-state public college is currently approaching $90,000!
Regardless of where you are in the college savings
process, there are effective strategies that can help
you succeed in funding a college education for
your children or grandchildren. Following these
three steps may provide the foundation to help you
accumulate funds for higher-education expenses:
1 Estimate the Cost
2 Establish a College Fund
PREVIEW
3 Evaluate Other Funding Sources
An Investment
Source: Trends in College Pricing 2019, College Board in the Future
Nearly 9 in 10
parents agree
The Importance of Acting Now
that college is an
investment in their
In a national study of parents with children under the age of 18 about
child’s future and
how they are preparing financially for college, nearly two-thirds said they
expect their child will
are saving or creating a plan for how to meet college costs — or both. attend some form
of higher education
Interestingly, parents of young children (age 6 and under) are as likely
someday.
to be saving and planning for college as parents of older children. And
Source:
more than eight in 10 parents said they are willing to stretch themselves
How America Saves
financially to obtain the best opportunity for their child. for College 2018,
Sallie Mae
Parents who are preparing for future college costs are much more likely
to feel confident that they will be able to meet the costs compared with
parents who are not saving or preparing.
Source: How America Saves for College 2018, Sallie Mae
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College Funding V20N1 © 2020 Broadridge Investor Communication Solutions, Inc.
Estimate the Cost
Current Cost of a College Education
For the 2019–2020 academic year, the average cost at a four-year public college
is $21,950. This is the cost for state residents; out-of-state costs are significantly
higher. The average total cost for four years at an in-state public college is $87,800.
Private schools are even more expensive. The average annual cost at a four-
year private college in 2019–2020 is $49,870, bringing the total four-year cost to
almost $200,000. Many private colleges cost considerably more.
Public college $ 21,950
x 4 years
College Costs $ 87,800
Over the past 10
Private college $ 49,870
years (2009–2010
x 4 years
to 2019–2020),
$199,480
college tuition, fees,
room, and board These figures include tuition, fees, room, and board but not indirect expenses
h“Wavhee tinhcerre yaosue da r1e7 r%ic,h
such as books, supplies, personal expenses, and transportation. And they will
on oarv eproaogre, .i t’s nice to
probably be even higher in the future because they don’t reflect college inflation.
have money.”
Source: PREVIEW
Source: Trends in College Pricing 2019, College Board
Tr e n d s in C o l–le gUe nPkrnicoinwg n
2019, College Board
Future Annual Cost of College
You might not realize the impact that college inflation can have on overall
costs. Over the past 10 years, the rate of college inflation has generally been
double the rate of general inflation, as measured by the Consumer Price Index.
If college inflation grows by a rate of 5 percent each year, the average annual
cost of a public college could reach $28,014 in five years, and the average annual
cost of a private college could reach $63,648. Looking 15 years out and using the
same assumptions, the average annual cost for a public college could be $45,632;
for a private college, it could be $103,676.
$150,000
$130,000
$103,676 Private
$110,000
Public
$90,000
$63,648
$70,000
$45,632
$50,000
$28,014
$30,000
$10,000
Year 5 10 15 20
Source: Trends in College Pricing 2019, College Board
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© 2020 Broadridge Investor Communication Solutions, Inc.
Estimate the Cost
Calculating the Cost
You can use this worksheet to estimate the future cost of sending your children
to college for four years and the annual savings needed to reach your goal.
College Cost Worksheet
Name of Current Annual Estimated Future Estimated
the Child Age College Cost x Cost Factor = Future Cost
L–e–a–h– –(–ex–a–m–p–le–) – –8– – $ – –2–2–,0–0–0– –– X –––7–.0–2–1– – = $ ––1–5–4–,4–6–2––
––––––––––– –––– $ ––––––––– X –––––––– = $ –––––––––
––––––––––– –––– $ ––––––––– X –––––––– = $ –––––––––
Estimated inflation rate: 5%
Age of Estimated Future Age of Savings Four Years May
the Child Cost Factor the Child Factor Not Be Enough
1 9.879 1 0.039
Many students take
2 9.408 2 0.042
longer than four
3 8.960 3 0.046
years to graduate
4 8.534 4 0.051
PREVIEW from college.
5 8.127 5 0.056
6 7.740 6 0.063
7 7.372 7 0.070
8 7.021 8 0.080
9 6.686 9 0.091
10 6.368 10 0.105
11 6.065 11 0.123
12 5.776 12 0.147
13 5.501 13 0.181
14 5.239 14 0.232
15 4.990 15 0.317
16 4.752 16 0.488
17 4.526 17 0.952
18 4.310 18 1.000
Estimated Futur e Annual
College Cost X Savings Factor = Savings Required
$ ––1–5–4–,4–6–2– –(L–e–a–h–) –– X ––––––0–.–0–8–0– –––––– = $ –––––1–2–,3–5–7––––––
––––––––––––––– X ––––––––––––––––– = $ –––––––––––––––
––––––––––––––– X ––––––––––––––––– = $ –––––––––––––––
Estimated investment return: 5%
This hypothetical example is used for illustrative purposes only and does not represent any
specific investment. Taxes and investment expenses are not considered.
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© 2020 Broadridge Investor Communication Solutions, Inc.
Estimate the Cost
What Is Your Savings Goal?
Not all parents expect to pay 100 percent of a child’s college education.
You might think of your college savings as a down payment on the total
cost, similar to a down payment on a home. A good benchmark is to aim to
save at least 50 percent of your child’s projected college costs. Then, when
the time for college arrives, you can supplement your savings with other
funding sources.
Contribution Goal
Personal Savings Other Sources
■ 25% 75%: ____________________
Use these spaces
■ 50% 50%: ____________________
to record how
■ 75% 25%: ____________________
Costs Are a much you expect to
Consideration ■ 100% contribute toward
future college
About 80% of families ■ Other _____% ____%: ________________
savings.
factor in the price
PREVIEW
of a college when
narrowing their list
Factor in Your Timeline
of schools to attend.
As you estimate future costs, you’ll need to consider your timeline.
Source:
How America Pays for How many years remain before you will need money for your oldest child’s
College 2019, Sallie Mae
first year of college? If you have more than one child, will you have two or
more children in college at the same time?
Determine your timeline and cumulative costs so you can establish a college
funding goal for each child.
How Will You Pay for College?
In addition to your own college savings, some of your child’s college costs
may be covered by:
• Financial aid
• Your income during the college years, plus any income your
child might earn from a part-time job
• Your assets or borrowing during the college years, such as
tapping your home equity
• Creative cost-cutting measures, such as having your child
attend a community college for two years before transferring
to a four-year college
• Generous gifts from grandparents or other relatives —
if you’re lucky
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© 2020 Broadridge Investor Communication Solutions, Inc.
Establish a College Fund
How the Typical Family Saves for College
These are the ways in which the typical American family saves for college.
As you can see, general savings and checking accounts and 529 college
savings plans are the most common, followed by investment accounts,
529 prepaid tuition plans, and certificates of deposit (CDs).
Percentage Using Each Vehicle
Savings & checking accounts 30%
529 college savings plan 30%
Investment account 14%
529 prepaid tuition plan 8%
Certificate of deposit 5%
Coverdell ESA 2%
PREVIEW
Trust 2%
Juvenile life insurance 2%
Source: How America Saves for College 2018, Sallie Mae
College Savings Options
• Tax-advantaged accounts
– 529 plans
– Coverdell Education Savings Accounts (ESAs)
– Roth IRAs
• Taxable accounts
Not all college savings options are created equal. Taxes can have a
significant impact on your savings accumulation over time. That’s why
it’s smart to consider tax-advantaged options when saving for college.
Why give money to Uncle Sam when you need every penny for college?
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© 2020 Broadridge Investor Communication Solutions, Inc.